Shares of Kotak Mahindra Bank gained over 2 percent on Tuesday after the bank reported its earnings for the first quarter of fiscal 2021. The stock rose as much as 2.06 percent to Rs 1349.70 apiece on the BSE. At 11:50 am, the shares traded 1.81 percent higher, quoting at Rs 1,346.40 apiece.

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The private sector lender on Monday reported an 8.5 percent fall in the standalone net profit to Rs 1,244.4 crore for the first quarter of fiscal 2020 as against Rs 1,360.2 crore in the same quarter last year. The profit was lower than CNBC-TV18's poll estimates of Rs 1,332.4 crore.

Net interest income (NII) during the quarter rose 17.8 percent to Rs 3,723.9 crore from Rs 3,160.9 crore, YoY. The net interest margin (NIM) for Q1FY21 was at 4.4 percent.

Asset quality in Q1FY21 weakened as gross non-performing assets (NPAs) rose 11.8 percent to Rs 5,619.33 crore from Rs 5,026.9 crore while net NPAs increased by 14.1 percent to Rs 1,777 crore from Rs 1,557.9 crore, QoQ.

CLSA

CLSA said that the bank’s Q1FY21 results were better than expected with inline NII and a beat on PPOP due to an Opex reduction. The bank has been selective in extending moratorium-2 leading to a reduction in its moratorium book to 9.7 percent of loans but also leading to slippage in 1QFY21.

“Kotak continues to choose balance sheet safety over growth. While this trade-off is impacting near-term growth it is making up on profitability by delivering well on reducing its cost of funds which will position Kotak bank well in the low risk/yield segments,” CLSA said.

The brokerage maintained Outperform rating and target price of Rs 1,400.

Nomura

Despite a sharp moderation in growth (7 percent QoQ) in the past 5-6 quarters, Kotak has been using margin levers extremely well to deliver strong PPOP (average growth 18 percent YoY in the past five quarters) irrespective of growth, Nomura noted.

In addition, strong liability traction (CASA ratio – 57 percent) aiding best-in-class funding cost (4.2 percent), strong capital position and prudent underwriting have enabled the bank to deliver superior return ratios (ROA/RORWAs) without any negative surprises on asset quality, it said.

Nomura maintained a Neutral stance and increased the target price to Rs 1,375 implying 3x Jun-22 book for ROEs of 11-12 percent for FY21-23F.

Motilal Oswal

Kotak Mahindra Bank continues to report steady progress in building a strong liability franchise with CASA ratio improving further to 57 percent. However, loan growth has reported sharp deceleration as the bank remains cautious in a weak macro environment, which got further aggravated due to the COVID-19, Motilal Oswal said.

The brokerage house estimates the bank to maintain a cautious stance in lending though a reduction in SA/TD rates should aid margins to a certain extent.

It estimates 1.6 percent credit cost for FY21 and maintained a Neutral rating with a revised target price of Rs 1,300.

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